FERC Audit Report Shows Continuing Tension with NERC

by Troutman Sanders LLP

On May 4, 2012, the FERC Office of Enforcement released a delegated letter order accepting the results and recommendations of an audit of the North American Electric Reliability Corporation (“NERC”). The audit report, critical of NERC in many ways, prompted NERC to issue a strongly-worded statement criticizing FERC Staff for releasing the report while negotiations regarding some of the audit results and recommendations were ongoing.

FERC’s Division of Audits listed eleven areas where “performance could be enhanced.” These areas included:

Paying amounts in excess of the IRS spending limit for retirement contributions as additional compensation for its employees;

Failure to provide a written criteria for determining whether activities should be funded under the Federal Power Act;

Failure to provide a transparent budgeting process;

Inadequate staffing for the Critical Infrastructure Protection (CIP) Program; and

Insufficient oversight for Regional Entities’ Budgets.

FERC made forty-two recommendations to address these and the other areas of improvement. NERC immediately released a statement saying “[t]he Office of Enforcement has declined to negotiate as is the norm and, instead, opted to initiate litigation on portions of the audit findings and recommendations. NERC is disappointed at this audit process and is dismayed that the Office of Enforcement, acting under delegated authority, declined the request to work toward resolution of these matters.”

A copy of FERC’s audit results is available here, and NERC’s announcement contesting the audit is available here.